* After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

FILED

United States Court of Appeals

Tenth Circuit

June 29, 2010

Elisabeth A. Shumaker

Clerk of Court

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

In re:

JAMES WINSLOW GRAVES,

d/b/a Custom Woods Construction,

LLC, and KATHRYN PATRICIA

GRAVES,

Debtors.

JEFFREY A. WEINMAN, Trustee,

Appellant,

v.

JAMES WINSLOW GRAVES;

KATHRYN PATRICIA GRAVES,

Appellees.

No. 08-1462

APPEAL FROM THE TENTH CIRCUIT BANKRUPTCY APPELLATE

PANEL

(BAP No. 08-038-CO)

Submitted on the briefs:*
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Jeffrey A. Weinman, Appellant, pro se.

Before BRISCOE, Chief Judge, HOLLOWAY, and EBEL, Circuit Judges.

HOLLOWAY, Circuit Judge.

The issue in this case is narrow: is debtors’ interest in a 2006 tax refund,

irrevocably applied pre-petition to 2007 taxes, subject to turnover under

11 U.S.C. § 542(a)? The Bankruptcy Appellate Panel (BAP) for this Circuit

answered in the negative. We hold that only the amount of any subsequent refund

of 2007 taxes attributable to pre-petition earnings is subject to turnover, and we

affirm with modification. 

In July 2007, prior to becoming Chapter 7 debtors, James and Kathryn

Graves filed their 2006 tax return. Pursuant to that return, the Graveses were

entitled to a $3000.00 tax refund. Instead of choosing to receive a current refund

of that money from the IRS, the Graveses elected to leave those funds on deposit

with the United States and apply the overpayment to their future tax liability. 

This election is irrevocable. Where an overpayment of tax is applied as a credit

on the next year’s taxes, “no claim for credit or refund of such overpayment shall

be allowed for the taxable year in which the overpayment arises.” 
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26 U.S.C. § 6513(d). Two months after filing their tax return, the Graveses filed

for bankruptcy protection. 

Jeffrey A. Weinman, appellant and trustee of the bankruptcy estate

(“trustee”), filed a motion for turnover of debtors’ 2006 tax refund under

11 U.S.C. § 542(a). 11 U.S.C. § 542(a) provides in relevant part that:

an entity, other than a custodian, in possession, custody,

or control, during the case, of property that the trustee

may use, sell, or lease under section 363 of this title, or

that the debtor may exempt under section 522 of this

title, shall deliver to the trustee, and account for, such

property or the value of such property, unless such

property is of inconsequential value or benefit to the

estate. 

In his motion, the trustee argued that the refund amount was property of the

estate under 11 U.S.C. § 541(a)(1), and that, since debtors were receiving the

benefit of the application of the refund, the funds should be treated as an account

receivable of the debtors, and debtors should therefore be required to turn over an

equivalent amount to the estate. The bankruptcy court denied the trustee’s

motion, and the BAP affirmed. Weinman v. Graves (In re Graves), 396 B.R. 70

(B.A.P. 10th Cir. 2008). The trustee filed a timely notice of appeal, triggering

our jurisdiction over the appeal under 28 U.S.C. § 158(d)(1).

In agreeing with the bankruptcy court that debtors could not be ordered to

turn over that which they did not have, i.e., “the amount they could have received

from the IRS in 2007, but did not,” In re Graves, 396 B.R. at 73, the BAP
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assumed, without deciding, that debtors’ “pre-payment constitutes estate property

as a contingent reversionary interest.” Id. at 75. The BAP further concluded,

however, that the Bankruptcy Code’s turnover provision, 11 U.S.C. § 542, does

not empower a trustee to demand turnover from a debtor under these

circumstances. Id. In doing so the BAP noted that, because of 26 U.S.C. §

6513(d), debtors “had no current right to possession of the pre-paid taxes” at the

time they filed their petition or at the time the trustee filed the turnover action. 

Id. Since the debtors’ interest in the overpayment was limited at the time of the

petition, the trustee’s right to possession was similarly limited. Id. The BAP

concluded that “[a] contingent right to a refund in the event that the Debtors

overpaid their 2007 taxes is not something, in our opinion, that is subject to

turnover.” Id.

“We review the BAP’s decision de novo because [t]here are no factual

disputes and the issues on appeal pertain to the proper application of bankruptcy

statutes and interpretation of case law. . . . In this review, we independently

review the Bankruptcy Court’s decision.” Zubrod v. Duncan (In re Duncan),

329 F.3d 1195, 1198 (10th Cir. 2003) (quotation and citations omitted).

The bankruptcy estate is comprised of “all legal or equitable interests of the

debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). 

The statute is deliberately broad in scope. United States v. Whiting Pools, Inc.,

462 U.S. 198, 204-05 (1983). Estate property does not have to be “immediately
-5-

capable of being liquidated into cash in order to constitute property of the estate,”

and includes debtor’s interests which “cannot be liquidated and transferred by the

debtor.” Nichols v. Birdsell, 491 F.3d 987, 990 (9th Cir. 2007). 

One of the central precepts of bankruptcy law is that 

a bankruptcy trustee succeeds only to the title and rights in property

that the debtor had at the time she filed the bankruptcy petition. 

Filing a bankruptcy petition does not expand or change a debtor’s

interest in an asset; it merely changes the party who holds that

interest. Further, a trustee takes the property subject to the same

restrictions that existed at the commencement of the case. To the

extent an interest is limited in the hands of a debtor, it is equally

limited as property of the estate.

In re Sanders, 969 F.2d 591, 593 (7th Cir. 1992) (citations and quotations

omitted); see also Collier on Bankruptcy ¶ 541.01 at 541-8.3 (15th ed. rev. 2009)

(“Subdivision (d) of [§ 541] makes clear that the estate can only succeed to the

same property interest that the debtor possesses, and cannot achieve a greater

interest.”). 

Applying this principle, it is clear that the trustee’s interest in the

application of the tax refund must be limited to the same extent as the debtors’

interest — here by the strictures of 26 U.S.C. § 6513(d), which makes debtors’

refund-application election irrevocable. Debtors will have no right to any cash

from the $3000 refund applied as a prepayment of their 2007 taxes until after

their 2007 tax liability is determined, and then only if they are entitled to a

further refund. The portion of that further refund attributable to pre-petition
1 We acknowledge a line of authority holding that an applied tax refund is

not estate property. See United States v. Pritchard (In re Block), 141 B.R. 609,

611 (N.D. Tex. 1992) (holding that monies were not property of the estate once

the irrevocable election had been made and thus were not subject to turnover);

Grant v. United States (In re Simmons), 124 B.R. 606, 607-08 (Bankr. M.D. Fla.

1991) (same). Given that some part of an applied refund may be available after

the ultimate tax liability is determined and that part of that amount may be

attributable to pre-petition earnings, we think a more comprehensive result is as

expressed herein.

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earnings would become property of the estate. Thus, we hold that the estate’s

interest in the pre-payment is limited to debtors’ contingent reversionary interest

in the pre-payment attributable to pre-petition earnings. See In re Middendorf,

381 B.R. 774, 778-80 (Bankr. D. Kan. 2008) (“The debtors’ interest in a

pre-petition tax overpayment is a contingent reversionary interest pending the

final determination of the debtors’ tax liability. Once the ultimate tax liability is

assessed and satisfied, the debtors’ interest vests in the resulting refund

attributable to pre-petition funds.”); cf. Redmond v. Lentz & Clark, P.A. (In re

Wagers), 514 F.3d 1021, 1029 (10th Cir. 2007) (recognizing that “even a

contingent, reversionary interest is included in a debtor’s estate under § 541”).1

Turning to whether turnover is appropriate under these circumstances, we

first consider the statutory language which requires that the turnover target, here

debtors, be “in possession, custody, or control, during the case, of property that

the trustee may use, sell, or lease under [11 U.S.C. §] 363.” 11 U.S.C. § 542(a). 

We agree with the BAP that, after filing their Chapter 7 petition and at least
2 Debtors presumably controlled the refund before they made their election to

apply it to future taxes, but that control was pre-petition and thus not “during the

case” as required by § 542(a).

3 The fact that debtors had never been in possession of the refund or the

prepayment during the case makes it unnecessary for us to engage in the debate

about whether § 542(a) requires them to turn over the “value” of the refund, given

the statutory language requiring a turnover target to deliver to the trustee

“property or the value of such property.” The cases relying on the “value of such

property” language involve turnover targets who, at least some time during the

case, possessed the debtor’s funds. See, e.g., Beaman v. Vandeventer Black, LLP

(In re Shearin), 224 F.3d 353, 356 (4th Cir. 2000) (law firm, having possessed

year-end profits of debtor/partner during the case, forced to turnover equivalent

amount to trustee despite no longer having possession of the funds at the time of

the turnover proceeding); Boyer v. Carlton, Fields, Ward, Emmanuel, Smith &

Cutler, P.A. (In re USA Diversified Prods., Inc.), 100 F.3d 53, 55-56 (7th Cir.

1996) (same, with law firm that possessed funds of debtor which it erroneously

returned to debtor’s president and noting that § 542 requires delivery of property

or the value of the property); Bailey v. Suhar (In re Bailey), 380 B.R. 486, 493

(B.A.P. 6th Cir. 2008)(requiring debtors to turn funds over to the trustee equal to

the amount of the tax refund they obtained post-petition and transferred to their

attorney).

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through the culmination of the turnover proceeding, debtors were never in

“possession, custody, or control” of their contingent reversionary interest in the

prepayment of their 2007 taxes. See Maggio v. Zeitz (In re Luma Camera Serv.,

Inc.), 333 U.S. 56, 64 (1948) (holding that “the primary condition of [turnover]

relief is possession of existing chattels or their proceeds capable of being

surrendered by the person ordered to do so”).2

 This fact alone dooms the trustee’s

efforts.3

Resort to § 542 cannot be used to broaden the trustee’s interest in the

refund, the pre-payment of 2007 taxes or in any other estate property. United
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States v. Neary (In re Armstrong), 206 F.3d 465, 472 (5th Cir. 2000); French v.

Johnson (In re Coomer), 375 B.R. 800, 806 (Bankr. N.D. Ohio 2007). In In re

Armstrong, the Fifth Circuit held that § 542(a) cannot be used to avoid the statute

of limitations inherent in 26 U.S.C. § 6511, the general tax-refund statute. The

Fifth Circuit noted that “[b]ecause that right [to a refund] is created and

circumscribed by § 6511 and nothing explicitly changes its terms, § 542(a) cannot

be read to expand the right to file for a refund to give the trustee unlimited time

so long as the bankruptcy continues,” id. at 472. Further, “[b]ecause the debtor

does not have a continuing interest in the tax overpayment under § 541(a)(1),

other than that created by § 6511, the trustee cannot use § 542(a) to create

interests not otherwise in existence.” Id. at n.6 (emphasis added).

Similarly, in French v. Johnson, the trustee attempted to secure turnover of

the debtor’s interest in a residential security deposit. In rejecting the trustee’s

contention that § 542(a) gave him a substantive right to the deposit, the court

stated: 

Section 542(a) is best viewed as an enabling provision, allowing the

trustee to obtain possession of property only where the debtor

otherwise had a right to possess the property. But where a debtor,

and thus the trustee, does not have a right to possess or use property

at the commencement of the case, the right generally cannot be

acquired through a turnover action under § 542(a). That is, a

bankruptcy trustee may not compel the turnover of property pursuant

to § 542(a) if the debtor had no right to obtain the property. 

Id. (citation omitted). Because, at no time during the case up to the filing of the
-9-

turnover action, did debtors have the right to obtain their refund or prepayment

from the IRS, the trustee could not compel turnover of that amount, and the

bankruptcy court correctly denied the turnover motion.

Things may be different now, however, because it is likely that debtors’

2007 tax liability has been determined. If debtors were entitled to a refund after

their 2007 tax liability was satisfied, the trustee is entitled to demand turnover of

any amount of such refund attributable to pre-petition earnings. See In re

Middendorf, 381 B.R. at 778-80; Traina v. Orrill (In re Orrill), 226 B.R. 563

(Bankr. E.D. La. 1997).

In addition to the statutory basis underpinning our conclusion, we are also

of the opinion that, from policy and practicality standpoints, this is the proper

solution. A turnover order issued at the time the trustee requested it here would

have required debtors to expend post-petition earnings or exempt assets in order

to comply with the order. See In re Blagg, 372 B.R. 502, 510 (Bankr. D. Kan.

2007). Such an outcome would have contravened the spirit of the bankruptcy

laws which aim to create a fresh start for Chapter 7 debtors. Id. Further, from a

practical standpoint, we agree with the bankruptcy judge who determined that a

turnover order under these circumstances would simply result in a contempt

procedure where the defense would most likely be impossibility, all resulting in a

waste of the court’s time. Aplt. App. at 40.
-10-

We are aware that, to a large extent, this holding conflicts with the Ninth

Circuit’s decision in Nichols, 491 F.3d 987. There, in a case factually

indistinguishable from this one, the Ninth Circuit held that the entire refund

amount was property of the estate and implicitly subject to turnover from the

debtors. In doing so, however, the court focused entirely on whether the refund

was property of the estate and neither discussed turnover nor analyzed the case in

light of the language of § 542(a). It is therefore unclear how the Ninth Circuit

would apply the statutory requirements for turnover, which clearly require

possession during the case, to the present situation.

We find some appeal in the reasoning of the Ninth Circuit that, by electing

to have their 2006 refund applied to 2007 taxes, the debtors in Nichols, like

debtors here, received something of value, i.e, a dollar-for-dollar reduction on

their 2007 taxes, money that could have been available to the bankruptcy estate

had the election not been made. The fact that all or part of a tax prepayment can

be estate property, however, does not determine the extent of the property interest

in the hands of the trustee nor, as discussed above, does it determine whether that

interest is subject to turnover.

In summary, we hold that the pre-petition portion of the refund is property

of the estate. We go further, however, to hold that only the part of the refund that

(1) is attributable to pre-petition earnings and (2) reverted to debtors after
-11-

application of the refund to their ultimate (2007) tax liability, is subject to

turnover. 

With the modifications discussed above, the judgment of the Bankruptcy

Appellate Panel is AFFIRMED.